May 9 (Bloomberg) -- New Jersey’s cuts in public school aid
to help close an $800 million revenue shortfall would strain
budgets in the 31 poorest districts, Moody’s Investors Service
said.

Any reduction would harm credit, because the districts
carry low rainy-day funds and state law prevents them increasing
property taxes to make up the difference. Cuts could strain
already-tight financial positions and prompt short-term
borrowing, Moody’s said in a May 8 report.

“Because the formula for state aid distributes more money
to districts with lower income levels, those with weak
demographics are most susceptible,” according to Moody’s.

Republican Governor Chris Christie’s budget for the fiscal
year ending June 30 set aside $12.4 billion for the more than
600 districts, or 38 percent of the total plan, Moody’s said.
State aid represents 79 percent of the neediest districts’
combined 2014 operating budgets, Moody’s said. Trenton, Camden,
Newark and Elizabeth would be most vulnerable, the company said.

Christie’s administration said last month that a drop in
income-tax collections caused the revenue shortfall. Treasurer
Andrew Sidamon-Eristoff said May 7 that funding for education is
one of the few areas with enough unspent money to cover the gap
so late in the fiscal year.

The 31 neediest systems are called Abbott districts, after
the state Supreme Court’s Abbott v. Burke rulings in the 1990s
that sought to equalize expenditures between the richest and the
poorest districts. Abbotts receive 56 percent of all state
education funding, Moody’s said.